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Buying vs. Building on a $3 Million Budget03:25

A classic car dealer debates buying vs. building on a $3 million budget.

Upgrading to a new home? You can buy a brand-new home in one of three ways: buying a house already built on spec; having a semicustom home built as part of a development (you can choose from a set palette of finishes and upgrades); or having a purely custom home designed and built to your specifications.

But don’t get so caught up in the sparkling new paint and granite countertops that you forget to make a good deal!

Evaluate the Pros and Cons of a New Home

New homes are typically far from the city center; will you mind the commute?

Are you willing to coax a new lawn into existence, and can you wait 20 years for sapling trees to mature?

Will the cookie-cutter nature of new subdivisions drive you bonkers?

New houses tend to be built right on top of each other. Do you mind the closeness and potential lack of privacy?

Evaluate the New Neighborhood

Check with the developer about potential homeowners' association (HOA) fees and rules; some are incredibly expensive -- and strict. They may not allow storage sheds, certain paint colors or finish materials, solar panels or even vegetable gardens. Be sure to find out if the HOA can assess penalties for infractions.

Ask whether cable and Internet are readily available and from what companies; your new house will be wired for cable but that does not mean the cable company offers service to your neighborhood.

If the development is still under construction, you’ll be dodging giant contractor trucks and facing jackhammering at 7 a.m. for a while.

Be Agent-Savvy

Remember that the real estate agents working to sell new homes work for the builder, not for you. They’re trying to hit a quota, not help you make the right decision for you and your family.

Many states regulate how agents deal with new subdivisions. If you have your own agent, tell him up front that you’re interested in looking at new homes. He must accompany you on your first visit to any new subdivision; if he doesn’t, the builder’s sales rep will get the full commission if you buy a home there.

Get the Skinny on Your Builder

Make sure there are no Better Business Bureau complaints on file against your builder’s company.

Ask your agent if the builder has a good reputation in the community.

Visit your builder’s previously constructed homes; ask the occupants whether the craftsmanship has stood up to time, use and weather.

Upgrade the Smart Way

Builders rake in the cash on upgrades because they can get parts and labor relatively cheaply. The markup is huge, so investigate each option you’re considering to see whether it would be cheaper to bid it out after you move in.

Builders, in general, need to sell quickly to make a profit. If you’re stuck haggling over price, get them to throw in the upgrades you want at a reduced cost or for free -- it’s a way to get more value that’s appealing to both sides.

Don’t Skip the Inspection

Never assume that because a home is newly constructed, it isn’t going to have defects. Make your sales contract contingent on a final inspection by a professional you hire.

If possible, have the home checked during each phase of building, when potential problems are easier to spot. If the builder objects to this, consider it a red flag.

Know that municipal inspections for code violations are nowhere near as thorough as an independent professional inspection is.

Protect Yourself with Warranties

All new homes come with an implied warranty from the builder stipulating that any major defect of the structural integrity of the home must be repaired.

You should ask for a builder’s warranty for a period of time following move-in (a year, for example) that covers any defects in craftsmanship.

Preferably, this warranty should be backed by insurance.

Make sure any warranty you receive explicitly states what is covered and what isn’t, and what the limitations for damages are.

For extra peace of mind (which we’re fans of), whip out your real estate attorney again and have her look over the warranty to make sure it’s kosher.